With a $1 billion loss in its most recent quarter, Aurora Cannabis Inc. on Thursday announced plans to close several facilities — including one Sky facility in Edmonton and two in British Columbia — and deal with pricing pressures that have gutted revenue already crippled by the COVID-19 pandemic.
The third-quarter loss reported by the Edmonton-based cannabis business was up from a loss of more than $160 million in the same quarter last year, and was associated with $741.7 million in goodwill impairment charges and $176.1 million in impairment charges related to property, plant and equipment. .
Many of those fees relate to facilities that Aurora said it will withdraw from its portfolio this year and next in an effort to create a “smaller, more flexible organization.”
The company said Thursday it has deemed its Aurora Sky facility in Edmonton, where 13 percent of its global workforce works, and the Aurora Anandia and Whistler Alpha Lake sites “redundant.”
Aurora Anandia and Whistler Alpha Lake are expected to close by the last quarter of the year, and Aurora Sky will be closed by the third quarter of 2023.
Aurora spokeswoman Kate Hellyar said in an email to The Canadian Press that the three facilities employ 16 percent of the company’s workforce. Refused to share the total size of the workforce.
Inventory, old products, fierce competition
Miguel Martin, Aurora’s CEO, said during a call with analysts that a quarter of the company was affected by excess inventory, obsolete products and fierce competition.
“These dynamics are unsustainable, but we have the scope and resources to navigate through them,” Martin said.
“In the meantime, our focus remains on maximizing profitability by taking advantage of lower cost production and further rationalizing the facilities that no longer make sense, and we have entered higher margin categories.”
Aurora’s loss includes the period before many businesses that have shuttered reopen or introduce increased health and safety measures when there is a spike in COVID-19 cases in Canada.
While many cannabis stores have remained open, they have reported declining traffic and sales.
In addition to the health crisis, the sector has also faced a sharp increase in cannabis retailers. In Ontario alone, the number of pot stores has swelled to 1,333 in recent months, up from 1,115 at the end of September.
Aurora was intent on beating some odds by focusing on premium products – a departure from competitors racing to lower prices in an effort to compete with the illicit market and capture more consumer dollars.
Martin called this behavior and the market that created it “illogical,” but on Thursday predicted change was coming.
“We expect to correct the recreational (cannabis) market in Canada and when this process is complete we will have additional market share and pricing opportunities,” he said.
While the Aurora waits for that amount of time, it’s gearing up to launch 40 new products between this spring and July, including its first pre-made coil and new vape-edible.
It will also keep an eye on its downsized facilities.
Days ago, it announced that it would be ending operations at an outdoor growth site at BC Interior because it had recently acquired Thrive Cannabis, which has both indoor and outdoor growth facilities.
Close the sky to save $7 million per quarter
When it opened, the Aurora Sky facility was supposed to be nearly fully automated and would grow mid-tier flowers, but the consumer “evolved” and developed more refined tastes that don’t lend themselves to automation, Martin said.
Sky had to be retroactively modified, but the needs and scope became “a bit of a hindrance” and eventually the company was losing a “significant” amount of money to the facility.
“It just didn’t make sense,” he said, noting that closing Sky would save the company $7 million every quarter.
He also announced that the company expects to make more savings from the recent business transformation it started to better align supply and demand. It now expects the plan to reveal savings of $150-$170 million, up from $60-$80 million previously estimated.
Aurora is seeking savings in part because its base and diluted loss per share for the quarter it announced Thursday was $4.72, compared to a loss of 83 cents during the third quarter of 2021.
Analysts, on average, expected a loss of 34 cents a share, according to financial market data firm Refinitiv.
Aurora said its net revenue for the period ended March 31 was $50.4 million, down 9 percent from about $55 million in the previous quarter.
“In an environment defined by political turmoil, record inflation and market volatility, we are intent on controlling what we control and achieving our goal of reaching EBITDA operating rate by the first half of fiscal year 2023,” Martin said.
“Indeed, I am very pleased to tell you that our plan is working and that we are in a better position to achieve this goal than we were a quarter century ago.”